5 Key Definitions in Variable Annuities

Variable annuities are a product that many people purchase in order to supplement their retirement portfolios. If you are considering purchasing a variable annuity, you need to understand everything in the variable annuity contract. Here are a few key definitions that you will need to understand when dealing with variable annuities.

1. Accumulation Phase

When you purchase a variable annuity, you are going to start out the process in the accumulation phase. This is the part of the annuity contract where you are paying into the annuity. The money that you pay to the company is going to accumulate over a specific period of time. This is the part of the annuity contract where you are going to be making periodic payments to the annuity company.

2. Payout Phase

At some point during the annuity contract, you are going to enter the payout phase. As the name suggests, this is going to be the portion of the annuity contract that you start receiving payments. This takes place after the accumulation phase and it will take place once you have reached retirement age. With this part of the annuity, you are going to receive a regular income payment every month. With some annuities, the payout phase will last for a specific number of years. With other annuities, the payout phase is going to last for the rest of your life. The payout phase can also be based on the lives of to individuals if you purchase an annuity for you and your spouse.

3. Death Benefit

Most variable annuities also have a death benefit. The death benefit is an amount of money that is going to be paid to a beneficiary that you select when you die. In some cases, your beneficiary will be able to receive the amount of cash that you have put into the annuity. In other cases, they will receive another predetermined amount of money.

4. Surrender Charges

When dealing with variable annuities, you may come across the term surrender charge. A surrender charge is a fee that is going to be charged to you if you try to get out of the annuity contract early. Most of the time, this type of fee is only going to apply if you cancel your annuity contract within 8 years of the initial purchase of the annuity. After a certain period of time, the surrender charges are not going to apply any longer. Typically, the surrender charges going to be a certain percentage of the amount that you have put into the annuity.

5. Bonus Credits

Some variable annuities offer bonus credits to investors. A bonus credit is amount of money that is going to be credited to your account every time that you make a payment. Typically, a bonus credit will be a certain percentage of the amount that you pay and the bonus credit feature will only last for a specific period of time. For example, you might get bonus credits for the first year after you have purchased the annuity. 

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